Ford Motor Co. (NYSE:F) experienced its most significant drop in eight months as the automaker failed to meet third-quarter earnings expectations, citing increased expenses and lower quality, even after achieving labor peace through a tentative agreement with the United Auto Workers.
With the six-week strike resolved, pending a ratification vote by the union membership, Ford announced the withdrawal of its adjusted earnings before interest and taxes forecast, which previously ranged from $11 billion to $12 billion, a projection it had raised in July. Rival General Motors Co., which has yet to reach an agreement with the UAW, also suspended its 2023 guidance.
Jim Farley, Chief Executive Officer of Ford, acknowledged the negative impact of the strike on the company’s financial performance, stating that cost and quality issues continue to weigh on the business. The strike, initiated on September 15, cost the company $100 million in the third quarter and a total of $1.3 billion so far. The UAW’s agreement with Ford will increase costs by an additional $850-$950 per vehicle, resulting in a reduction of margins by 60-to-70 basis points. John Lawler, Ford’s Chief Financial Officer, emphasized the need to find efficiencies and enhance productivity throughout the company to mitigate these impacts.
Following this announcement, Ford’s shares fell by 8% after the markets opened in New York, marking the most significant intraday drop since February 3. The stock had already dropped by 2.4% year-to-date as of Thursday’s close.
In terms of financial performance, Ford reported adjusted earnings per share of 39 cents for the third quarter, which is 9 cents higher than the previous year but fell short of the 47 cents consensus estimate compiled by Bloomberg. However, the company’s third-quarter revenue of $43.8 billion exceeded analysts’ expectations of $41 billion.
Jim Farley acknowledged the challenges faced by Ford during the strike, describing the company’s performance in the quarter as “mixed.” One of the factors contributing to this assessment was the fact that Ford had around 50,000 vehicles on hold due to quality-related issues in the third quarter, as revealed by CFO Lawler.
Ford is also slowing down its transition to electric vehicles (EVs), as it had previously indicated in July. Lawler stated in a conference call with analysts that Ford plans to delay $12 billion in EV-related investments, part of the $50 billion earmarked for EV spending. Furthermore, a second planned battery plant in Kentucky, in collaboration with South Korean partner SK ON, is being postponed. Ford is also reducing production of the electric Mustang Mach-E at a plant in Mexico, which had been expanded earlier this year.
The challenges in Ford’s electric vehicle business, known as Model e, led to a loss of $1.33 billion before interest and taxes in the quarter ending on September 30, surpassing analysts’ expectations of a $1.27 billion loss.
Sales of Ford’s flagship EV, the F-150 Lightning, declined by 46% in the quarter due to the factory’s temporary shutdown for expansion, delayed truck deliveries for quality checks, and temporary layoffs of plant workers. Farley stressed the importance of competitiveness on cost in the EV sector, noting that market leader Tesla Inc. has set a high standard for rivals by cutting costs and scaling production.
Despite a 7.7% increase in US vehicle sales during the quarter, led by models such as the Bronco SUV and F-150 pickup truck, the traditional internal combustion engine unit, known as Ford Blue, reported third-quarter earnings before interest and taxes of $1.72 billion, falling below analysts’ average forecast of $1.94 billion.
Ford’s commercial business, known as Ford Pro, also posted earnings before interest and taxes of $1.65 billion, which fell short of the $2.16 billion expected by analysts. However, this unit has seen growth in selling software services to help fleet owners manage their vehicles more effectively, a business that Ford anticipates will grow by up to 1,000% over the next few years.
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Author Faith Yakubu